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Why Wayfair Inc. Stock Slipped Today

By Jeremy Bowman – Nov 1, 2018 at 12:13PM

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Shares of the online home-furnishings retailer sold off on a disappointing bottom-line result in its third-quarter earnings report.

What happened

Shares of Wayfair Inc. (W 2.14%) were sliding today after the online home goods retailer posted a wider-than-expected loss in its third-quarter earnings report. Investors seemed to dismiss strong revenue growth and instead focused on the bottom line in a tightening interest-rate environment that could be tough on growth stocks. As a result, the stock was trading down 14.2% as of 11:00 a.m. EDT.

So what  

Wayfair showed off another strong quarter of top-line growth with sales increasing 43.3% to $1.71 billion, which beat estimates at $1.67 billion, and active customers increased 35% to 13.9 million.

A dining room set with a table and six chairs.

Image source: Wayfair.

Gross margin fell from 23.4% to 23%, a sign that input costs may be increasing, and operating loss nearly doubled to $145 million in the period as costs like selling, general, and administrative expenses ballooned. Its adjusted per-share loss also nearly doubled from -$0.65 to -$1.28, which was worse than estimates at -$1.09.

CEO Niraj Shah continued to focus on the top-line growth and market-share gains, saying: "We are pleased to report another quarter of incredibly strong growth with our Direct Retail business growing 43 percent this past quarter. We are delighted with the market share we are winning as we continue to invest in leading the way in bringing customers the best possible shopping experience in our category online."

Now what

Though Wayfair management clearly liked the results, investors seemed to be concerned about growing losses, as the home-furnishing specialist will eventually have to deliver profits. As nervousness about unprofitable growth stocks has spread, Wayfair shares were already sliding coming into the report with the market sell-off over the last month, so today's slide is partly a continuation of that pattern.

Wayfair did not offer guidance for the current quarter, but with the consumer economy strong, momentum from the previous quarter, and the holiday season coming up, I'd expect another round of strong top-line growth for the fourth quarter. However, it's clear that the company is focused on market-share gains and penetrating what it believes to be a $600 billion opportunity, so investors should expect continued losses for the foreseeable future as Wayfair invests in that growth opportunity.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Wayfair. The Motley Fool has a disclosure policy.

Stocks Mentioned

Wayfair Stock Quote
$37.75 (2.14%) $0.79

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